Coal in India needs a facilitator, but GOM wants one more regulator

The Group of Ministers of the UPA has cleared the coal regulatory bill that will create an independent coal regulatory authority for India. This will be in addition to the office of the Coal Controller an authority under the ministry of coal that was actually set up by the British way back in 1916 to ensure coal quality and supplies. To truly help the industry, the supply chain of coal needs to be deregulated not controlled. Coal needs to be sold as any other commodity in the market place ….like say potato or textiles or petrol. In all these cases suppliers compete with each other under free market conditions where pricing is based on the quality of goods offered at the point of supply not at the farm or the textile mill or the refinery.

If the honorable ministers visit a retail petrol or gas station they will find that the price of energy is responsive to market demand and that it is sold in different grades as per its calorific value or octane number. Besides the quality is verifiable at the petrol or gas station unlike Coal which CIL wants to measure at mine end and not at supply point. There is no potato controller or textile or petroleum regulatory authority, that ensures compliance. Instead the producers association of each of the above commodities act as market facilitators trying their best to enhance their production and user consumption.

Today their is a shortage and an acute crisis in coal because there is no free market mechanism for coal production and sales. Coal India Limited CIL is a monopoly that controls 80 % of the nations coal. It has been continuously producing poor quality of coal that has caused its biggest customer NTPC to protest loudest . The Gross Calorific Value GCV of CIL coal was found 2100 kcal/ kg from India’s largest coal belt near Dhanbad against 3100 kcal/ kg plus coal required by the energy major and 5500 kcal/ kg plus coal available in imported coal. CIL has 3.5 lakh workers who have very poor productivity and skill set and powerful trade unions and it continuously fails to meet customer demand both in quality and quantity, every year. This year CIL delivered just 130 Million Metric Tonnes to its largest client NTPC against its request of 175 MMT calculated at 90% plant load factor, forcing NTPC to import coal. NTPC also refused to pay for the stones it received from the Dhanbad Jharia belt with coal and CIL retaliated by threatening to stop supplies, instead of trying to improve quality issues.

The powerful CIL trade union leaders work hand in glove with the coal mafia. They organize large scale theft of the mined coal, water the coal that makes it heavier but less combustible, and put stones in the coal rakes so that the stolen coal which is around a third of the mined output is substituted in weight by the moisture and stones in coal.

The coal mafia not only shares the loot with CIL officers, the union leaders but also with political leaders both of the states and the centre, though not all workers and politicians are necessarily tainted. The vested interests of the coal mafia, the worker unions and politicians come together in devising strategies to keep coal in the wraps. The effort cuts across party lines and the law makers and law breakers. For them the two biggest threats are the foreign investors who want transparency and better productivity and the plan to break up CIL that will destroy its monopoly status and will create a competitive coal economy with market based pricing. They are doing their best to keep coal regulated and its supply lines choked so that free market operations may not succeed and their loot continues.

The disinvestment program of CIL expected to reduce the budgetary deficit by around Rs. 17,000 crore has now been called off as the Trade Unions egged on by the coal mafia have threatened to go on strike. Foreign investors want transparency and CIL’s largest foreign institutional investor TCI of UK has been fighting with the CIL top management to clean up the system. TCI has long insisted on improving productivity and revenue and implementation of a plan to provide washed coal to clients and even knocked at the doors of the Kolkata high court for this purpose. The plan to disinvest or break up CIL is bitterly opposed by the trade unions and the coal mafia but the Government has no appetite to fight them in an election year despite the hit on the non tax revenue generation that was once the main hope to reduce the budgetary deficit.

So why is the GOM proposing a coal regulator ? The coal regulator cannot dilute the clout of the CIL unions or the mafia. It cannot help in the disinvestment nor can it help break Coal India Ltd into multiple entities. It can only lay down guidelines that CIL may or may not follow due to corruption, tardiness and inefficiency of its own set up. These guidelines like ensuring coal quality are no rocket science that would need another bureaucratic entity as an regulatory authority. There has been already an agreement in 2009 between CIL and NTPC to do the sampling of Coal as per BIS standards with some minor modifications. You need bomb calorimeters not any state of art high tech equipment or highly skilled technicians to man the testing centre. So why is a regulatory authority needed to check what a simple testing lab can do?

Additionally there is already a coal controller in the coal ministry that is supposed to look after the quality of coal and supplies from mines. Among its listed functions as per a 2004 notification are inspection of collieries so as to ensure the correctness of the class, grade or size of coal and to act as the appellate authority in case of dispute between consumers and owner arising out of declaration of grade and size of coal.Unfortunately stones still account for 30 percent of the supplies and Coal India has taken no action on quality during the last decade despite the coal controller. If the coal controller in the same ministry that has been in existence for nearly a century has proven to be so ineffective, how can the coal regulator deliver? CIL was even given a mandate to set up a Public private partnership PPP for washeries almost a decade ago to improve quality. Private parties submitted bids for washeries but CIL could not get the environmental clearance not due to the MOEF or the private parties fault but due to its own tardiness.

Sri Prakash Jaiswal the coal minister has stated that the coal regulator is being created so that fingers are not pointed at his ministry or the PMO during any coal block allocation. Really ? The TRAI could not prevent the 2G scandal in the Telecom sector airwaves allocation, so how can a coal regulatory authority do so in coal block allocation? Or is the GOM creating a fall guy in the form of a white elephant to pass the buck,in case of another scandal. Does the GOM really want coal to flow seamlessly to the industry? The allocation of coal blocks can be done in a transparent manner with or without a regulatory authority. It is a one time job and if proper pre qualification and bidding norms are maintained and global best practices followed then there is no chance that one can go wrong.

The bigger issue however is overseeing the mining operations in accordance to international best practices and environmental norms, ensuring quality output, something that the coal controller failed to do especially since the British left India. What India needs is a coal facilitator. One that functions like an industry body and includes the buyers and producers to ensure that output is enhanced.

If Coal India is not broken up, it should be at least instructed to deliver to market like petroleum companies where quality and quantity can be checked. That has to be the starting point for free market economics, in case the supply chain of coal has to be eased. Else the captive miners and coal users should be given mining licenses to ensure that the power, steel and cement plants in India operate unhindered .

You can follow Sandip Sen at twitter @ecothrust

DISCLAIMER : Views expressed above are the author's own.

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Sandip Sen is the Managing Editor of Indian Printer Publisher, a 35 year old magazine on printing and publication. He also writes on business, economy and technology in many Indian and International publications and is the author of the book Neta,Babu & Subsidy: Roundup 2000 to 2014.Follow Sandip Sen on Twittter.

Sandip Sen is the Managing Editor of Indian Printer Publisher, a 35 year old magazine on printing and publication. He also writes on business. . .